nep-eec New Economics Papers
on European Economics
Issue of 2022‒02‒28
seven papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. A composite indicator of sovereign bond market liquidity in the euro area By Riccardo Poli; Marco Taboga
  2. Measuring market power: macro and micro evidence from Italy By Emanuela Ciapanna; Sara Formai; Andrea Linarello; Gabriele Rovigatti
  3. Central Banks Caught Between Market Liquidity and Fiscal Disciplining: A Money View Perspective on Collateral Policy By Jakob Vestergaard; Daniela Gabor
  4. Business Cycle Accounting for the COVID-19 Recession By Fernandes, Daniel
  5. Is money demand really unstable? Evidence from Divisia monetary aggregates By Barnett, William A.; Ghosh, Taniya; Adil, Masudul Hasan
  6. A RHOMOLO assessment of the impact of regulation in the EU services sector By Javier Barbero; Manol Bengyuzov; Martin Christensen; Andrea Conte; Simone Salotti; Aleksei Trofimov
  7. Climate Risk Measurement of Assets Eligible as Collateral for Refinancing Operations – Focus on Asset Backed Securities (ABS) By André Loris; Grept AliceLaut Nadia; Plantier GabrielSapey-Triomphe Zako; Weber Pierre-François

  1. By: Riccardo Poli (Bank of Italy); Marco Taboga (Bank of Italy)
    Abstract: We propose a methodology to build and validate a composite indicator of the market liquidity of euro-area sovereign bonds. The indicator aggregates several metrics from different trading venues, with the aim of providing a comprehensive measurement of prevailing bond-market liquidity conditions in the four largest euro-area economies (Germany, France, Italy and Spain). The composite indicator, which starts in 2010, allows us to put into historical context the sharp liquidity deterioration experienced at the height of the COVID-19 crisis. The deterioration was comparable to, although slightly less severe than, that experienced during the European sovereign debt crisis. However, while at the time the impairment in liquidity conditions had lasted for more than two years, this time it was quickly re-absorbed. We provide some evidence that the promptness and boldness of the ECB’s interventions in 2020 could help to explain this difference: according to our indicator, the announcements of the Pandemic Emergency Purchase Programme and other policy measures having an explicit market stabilization function were immediately followed by significant improvements in the liquidity of sovereign bonds.
    Keywords: market liquidity, sovereign bonds, market microstructure, Covid-19
    JEL: G12
    Date: 2021–12
  2. By: Emanuela Ciapanna (Bank of Italy); Sara Formai (Bank of Italy); Andrea Linarello (Bank of Italy); Gabriele Rovigatti (Bank of Italy)
    Abstract: In this paper, we provide an assessment of the evolution of markups in Italy in the last twenty years. To this aim, we resort to both macro and micro data and estimation techniques, namely reduced forms accounting measures (price-cost margins) and production function model-based indicators. When using aggregate data, we adopt a comparative approach and analyse markup dynamics in the four main euro area countries, whereas the micro-level analysis is focused on Italy. According to our findings i) markups have shown flat/slightly decreasing dynamics in the last decades in the major EU countries, settling on average in level at 1.1; ii) aggregate dynamics hide substantial across sector and firms heterogeneity in markups patterns; iii) the micro-level analysis for Italy indicates the within-firms component as the most relevant in explaining markups behavior; iv) no top firms-driven dynamics emerge; v) our evidence conflicts with the results obtained in De Loecker and Eeckhout (2018) because the latter suffers of two main sources of bias: a strong sample selection, and the assumption of a common technology parameter across countries. Finally, we propose an encompassing measure of market power, summarizing the several indices investigated in a principal component framework. This synthetic indicator describes the markups evolution for the Italian economy and we confirm its effectiveness based on a set of validation variables.
    Keywords: Markups, competition measures, Euro Area, micro-macro data
    JEL: D2 D4 E2 L1 O3
    Date: 2022–02
  3. By: Jakob Vestergaard (Roskilde University); Daniela Gabor (University of West England)
    Abstract: Despite much attention to unconventional monetary policies after the financial crisis, the collateral policies of central banks are rarely discussed. And when they are, the haircuts applied to assets pledged to access central bank liquidity tend not to be analyzed. An exception to these trends is the recent work by Nyborg (2017), who argues that the collateral policies adopted by the European Central Bank (ECB) aggravated the sovereign debt crisis and put the survival of the euro at risk. Taking our point of departure in the money view literature (Mehrling 2011), we argue however that Nyborg`s critique of the ECB`s crisis response is misguided and that his proposal to deepen and reinforce the ECBs role in the fiscal disciplining of member states would be procyclical and destabilizing. Through our analysis of Nyborg`s work and the ECBs crisis response, we identify core principles for countercyclical collateral policies suitable for market-based financial systems.
    Keywords: Central banks, collateral policy, fiscal disciplining, financial stability, haircuts.
    JEL: E42 E58 F45
    Date: 2021–12–01
  4. By: Fernandes, Daniel
    Abstract: We apply the Business Cycle Accounting framework to the COVID-19 recession in the Euro Area and the United States. We conclude that the efficiency wedge had the most important role in the Euro Area, followed by the labor and investment wedges. In the United States, the labor wedge was most crucial, with the investment wedge taking a second place. We present hypotheses, supported by our theoretical framework, for the dichotomy of the role of the efficiency wedge between the studied regions.
    Keywords: Economics COVID-19 Business Cycle Accounting Macroeconomics Financial Crises Financial Frictions Wedges
    JEL: E3 E32 F4 F44
    Date: 2022–01–17
  5. By: Barnett, William A.; Ghosh, Taniya; Adil, Masudul Hasan
    Abstract: We revisit the issue of stable demand for money, using quarterly data for the European Monetary Union, India, Israel, Poland, the UK, and the US. We use a modern version of the same linear time-series macroeconometric modeling and specification approach that had previously cast doubt on money demand stability. Autoregressive distributed lag (ARDL) cointegration models are used in the study to establish a long-term relationship among real money balances, real output, interest rate, and real effective exchange rate. For all the countries analyzed, evidence of stable demand for money is found. Broad money in general is better at capturing a stable demand for money than narrow money. The stability results are especially strong, when broad Divisia money is used instead of its simple sum counterpart. Our results are consistent with the large literature on the Barnett critique, which is based on a different methodological tradition that employs microeconometric modeling of integrable consumer demand systems. That literature has never found the demand for monetary services, measured using reputable index number and aggregation theory, to be any more difficult to model or less stable than the demand for any other good or service in the economy.
    Keywords: Narrow money demand, broad money demand, simple-sum monetary aggregates, Divisia monetary aggregates, ARDL cointegration approach
    JEL: C23 E41 E52
    Date: 2022–01–03
  6. By: Javier Barbero (European Commission - JRC); Manol Bengyuzov (European Commission - DG GROW); Martin Christensen (European Commission - JRC); Andrea Conte (European Commission - JRC); Simone Salotti (European Commission - JRC); Aleksei Trofimov (European Commission - DG GROW)
    Abstract: Services account for about 70% of the GDP of the European Union (EU), and a similar share of employment. The 2006 Services Directive aims at promoting trade and investment in services by removing unjustified regulatory and administrative barriers. Nevertheless, the Single Market for services remains fragmented. The analysis reported here shows that the realised removal of barriers between 2006 and 2017 results in discounted cumulative gains of 2.1% of GDP by the year 2027. Additional ambitious reforms could generate an additional growth potential of up to 2.5% of GDP by 2027, resulting in a total cumulative gain in GDP of up to 4.65% by 2027.
    Keywords: rhomolo, general equilibrium, economic growth
    JEL: C68 R13
    Date: 2022–01
  7. By: André Loris; Grept AliceLaut Nadia; Plantier GabrielSapey-Triomphe Zako; Weber Pierre-François
    Abstract: This paper analyses the exposure to climate risk of ABS, an asset class frequently pledged as collateral in the European Central Bank (ECB) refinancing operations. This paper focuses on ABS backed by auto loans or loans granted to Small and Medium Enterprises (SMEs) and explores ways to measure their climate risk based on the characteristics of the underlying loans, using existing loan-level data requirements. The ultimate goal was to come up with an alignment metric, i.e. to judge whether ABS related emissions would meet the Paris Agreements objectives, a task hindered by the lack of data available. Despite these limits, we were able to come up with relevant indicators related to ABS carbon impact, enabling the computation of ABS climate related risk proxies. Without necessarily being able to measure a concrete impact, we carved a series of indicators to serve as a reference. However, we conclude that an improved and harmonized framework for the provision of non-financial information seems essential to achieve an accurate analysis and monitoring of the financial sector's exposure to climate change.
    Keywords: Collateral Framework, Asset-Backed Securities (ABS), Securitisation, Climate Change
    JEL: D81 E51 E52 E58 G21 Q51 Q54
    Date: 2022

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